Brexit – A Case of Self-Imposed Damage?

In a personal view from Peter Brennan, Managing Director of EPS Consulting and Member of the Public Policy Advisors Network, this blog reviews the current Brexit position from an Irish perspective.

In November I expect the EU and the UK will reach agreement on the terms of the UK’s exit from the EU; the so-called Withdrawal Agreement. Once this international treaty is approved by the European Parliament, it will be sent to the UK for ratification. It will be December before the treaty is considered by the Houses of Westminster. The vote by the House of Commons (possibly in January 2019) will be to accept or reject the Withdrawal Agreement.

The decision will be very much influenced by a joint UK-EU political declaration (yet to be agreed) about the UK’s future relationship across a wide agenda including security, defence, migration, customs and trade. While not legally binding, this declaration is expected to set the guidelines for and principles of negotiations that will, during the implementation period, lead to the conclusion of a series of bilateral UK-EU treaties; most of which will require the unanimous approval of EU Member States before they enter into force i.e. any one Member State can use its veto

The UK government now has to explain why it was impossible to make Scotland a special case – while at the same time agreeing separate arrangements for Northern Ireland. Scotland’s First Minister says the backstop would give Northern Ireland a competitive advantage by offering businesses easier access to the single market, which she fears would have a “devastating” impact on Scottish jobs and investment.

If the Withdrawal Agreement is adopted (a big ‘if’ to my mind), the UK leaves the EU on 29th March 2019. UK officials will no longer attend meetings in the EU Institutions. British civil servants working in the EU institutions will lose their jobs. The EU Institutions based in the UK will move elsewhere. The rights of UK and EU citizens to live, travel, work and avail themselves of healthcare will be clarified as will the mutual recognition of professional and other qualifications. The UK will continue to contribute to the EU budget until 2021 i.e. for as long as it continues to be in the Single Market. It is expected there will be a clean break in relation to some policy areas such as financial services and fisheries, but for others (customs, trade, transport, border controls, environment to name a few) there will be an implementation period of upwards of two years during which the status quo will apply while the ‘nitty gritty‘ of Brexit is negotiated.

For example, during this period the UK and EU (assuming the UK has a clear position, which it has not at the time of writing) will not just negotiate the legal arrangements governing customs and other matters but both parties will need to invest to implement the resulting changes to IT systems, infrastructure, additional inspectors before the new arrangements apply. Significant new legislation will need to be enacted by Westminster and the Devolved Governments. Regardless of what solution is agreed, there will be controls and inspections at the UK’s frontiers with the EU. The issue is where, by which means and the rigour of the regulation.

The ‘backstop’ on Northern Ireland is an insurance policy. The UK Government has already agreed that in the event the negotiations on its future customs and trade relations result in the creation of a hard border between the UK and the rest of the EU then Ireland and Northern Ireland will continue to operate in a common regulatory area without internal borders in relation to trade and citizens’ rights (including the Common Travel Area). Should the backstop become necessary, Northern Ireland would be considered part of the customs territory of the Union. In such a scenario controls would apply to goods exported to/from NI and Scotland. The protection of the 1998 Good Friday Agreement in all its dimensions underpins the commitment to the backstop.

Some 40% of the Irish companies most affected have Brexit Mitigation Plans in place. Brexit involves significant supply chain logistics issues. Irish businesses are and will move to source goods to be imported directly from other EU markets making less use of the existing Landbridge . Some have acquired additional storage capacity in the UK or Continental Europe depending on their business needs. Others have switched some production capacity into the UK given that it is one of Ireland’s most important export markets. Many are actively planning to diversify their exports away from the UK to more reliable markets. New direct shipping routes between Ireland and continental Europe have already opened and more will follow.

The disruption of East-West and North-South trade and commerce between Ireland and Northern Ireland that will arise as a direct consequence of Brexit (in whatever shape it takes) will cost jobs in both economies; reduce our collective economic growth; result in the cancellation or re-direction of investment decisions away from these islands; threaten farming as CAP subsidies will not be paid to British and NI suppliers after 2020; isolate UK researchers and students from their EU counterparts; and by virtue of the UK’s acknowledged inability to manage new customs and other controls, cause major (and immediate) shortages of foodstuffs, medicines, raw materials and energy supplies. Sterling may come under pressure and UK interest rates may rise.

Irish businesses find it hard to understand why the UK wishes to impose these self-imposed damages on its peoples.